European Affairs

Lord Hammond of Runnymede Excerpts

Thursday 25th February 2016 Commons Chamber

[The Secretary of State for Foreign and Commonwealth Affairs (Mr Philip Hammond)]

I beg to move,

That this House has considered European affairs.

In just under four months’ time, the British people will face a choice—one that has been denied to them for many years—that we pledged to give them in our election manifesto and that we are now delivering; a choice that will have profound consequences for this country for a generation or more—whether to remain in the European Union on the basis of the deal negotiated by the Prime Minister or to leave.

The last time the British people were consulted on this question, 40 years ago, the answer was a clear yes, but much has changed in that 40 years, and the fact that we are holding this referendum now is recognition of a growing unease at the direction in which the EU has evolved—a growing sense that Europe was pursuing a goal that Britain did not share, and that we risked being dragged into a level of political integration for which few in Britain have any appetite.

For 25 years, I have shared that sense of unease. I have always considered myself a sceptic, and I consider myself a sceptic today. Like most people in Britain, I do not feel any warmth or affection for the EU or its institutions. I am irritated by the tone of much of what I hear coming from Brussels and instinctively suspicious of anything that sounds like a “grand projet”. But we do not live in some ideal world; we live in the real world, and the EU is part of that real world. The question that we have to answer is not: do we like it? The question we have to answer is whether we are stronger, safer and better off in the EU rather than out of it. Stronger, because our global influence is enhanced by being a leading member of the world’s largest trading bloc. Safer, because working together with EU partners strengthens our defences against organised crime and terrorism. Better off, because Britain benefits from having a domestic market of 500 million consumers and the clout that a quarter of the world’s GDP gives the EU in negotiating trade deals.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

The Prime Minister has said in recent days that his view of the European Union’s impact on our collective security had changed over the years because of his experience as Prime Minister. The Foreign Secretary would probably be thought of by many people as having a Eurosceptic background. Has his experience as Foreign Secretary also changed the balance of his view on the European Union’s impact on our collective security?

[Mr Hammond]

Yes, it has. First as Defence Secretary, and now as Foreign Secretary, I have seen how, in practice, working with EU partners is an important tool in our armoury. Of course, the EU will never, in any way, replace the security benefit that we get from NATO; it does a different thing. However, we have seen in the conflict over Ukraine that economic sanctions—which, in reality, are the only practical weapon available to us in responding to the challenge of Russia—when properly honed and consistently used by the European Union, will prove to be a very important weapon in our armoury against Russian aggression.

[Sir Edward Leigh (Gainsborough) (Con)]

This Government have rightly been critical of previous Governments for not having an independent audit of our national finances, and they have set up the Office for Budget Responsibility. [Interruption.]

[Sir Edward Leigh]

Well, back to my theme. We have set up the Office for Budget Responsibility. The Foreign Secretary is rightly doing a sort of cost-benefit analysis of this issue. Why do the Government not institute an independent study, by a genuinely independent body, to go in some detail into the effects of a Brexit, plus or minus, on, say, GNP? That would surely be very useful.

[Mr Hammond]

The problem with the challenge my hon. Friend presents—it is going to be a recurrent theme in this debate, I suspect—is that we simply do not know what the counterfactual is. We do not know what Britain’s situation outside the European Union would be. We do not know whether a deal could be negotiated with the remaining 27. We do not know what free trade agreements could be negotiated with other parties, and we do not know on what timescale those could be achieved. We do not know what damage would be done to our economy in the meantime. I fear that the objective analysis my hon. Friend is seeking might be very difficult to achieve.

[Damian Green (Ashford) (Con)]

The Foreign Secretary is advancing the case of the economic benefit of Britain’s membership of the European Union, and he may like to hear the verdict from Britain’s manufacturing industry. Yesterday, at the Engineering Employers Federation, I took part in a debate with a senior member of the Vote Leave campaign, at the end of which 800 of Britain’s manufacturing companies voted by 83% that they would prefer Britain to stay in the European Union. That is what is happening in the real world among real people who make real things for Britain’s benefit.

[Mr Hammond]

I am unsurprised by the figure that my right hon. Friend quotes, because in the world of manufacturing, where supply chains are increasingly complex and internationalised, the operation of the single market, and particularly the operation of the customs union, will be increasingly important to the competitiveness of British businesses. There are substantive reasons that business can see for remaining in the European Union, but there is another reason over and above that: business hates uncertainty, and the one thing that is becoming crystal clear is that whatever the end state might be if there were a British exit, for a period of years—perhaps many years—there would be very significant uncertainty, and that would act as a chilling effect on investment, job creation and business confidence in the United Kingdom.

[Several hon. Members rose—]

--- Later in debate ---

[Mr Hammond]

I will take one more intervention and then I must move on.

[Ms Tasmina Ahmed-Sheikh (Ochil and South Perthshire) (SNP)]

I appreciate that the Foreign Secretary is just a couple of minutes into his speech, but in the opening minute we heard a series of negative words used to describe our relationship with the European Union. I think I might have heard the words “suspicious” and “sceptical”. I wonder what our friends in France and Germany might be thinking as they watch this debate when somebody who is apparently in favour of our being members of the European Union is using such language. Coming from the in campaign, is this the type of debate that we can expect in relation to our relationship with Europe?

[Mr Hammond]

I think it is important that our friends and partners in Europe understand—I say this to my colleagues very regularly—that for the great majority of people in this country there is no passion about a European vision. We find in some European countries genuine passion for the idea of Europe, but that is not the British way. Lots of people in this country believe that we should remain in the European Union because it is good for Britain and good for our economy—because we are stronger, safer, and better off. That is not the same as being passionately attached to some idea of a European vision.

[Several hon. Members rose—]

[Mr Hammond]

I am going to make a little progress, if my right hon. and hon. Friends will allow me.

The PM’s pledge was to engage with our partners in Europe to agree a series of reforms to get the EU back on track and to change the terms of our membership to protect our interests, and then to put the question to the British people. He has delivered on that pledge.

[Sir Gerald Howarth (Aldershot) (Con)]

Will my right hon. Friend give way?

[Mr Hammond]

I will in just a moment.

So the question is this: should we stick with what we know, bank the gains that the Prime Minister has brought back from Brussels, and continue to fight from the inside for reform, or should we take a leap into the dark? For me, the answer is clear: I am a sceptic who will vote with my head to remain because I know in my heart that that is what is right—what is best—for Britain.

[Wes Streeting (Ilford North) (Lab)]

I share the Foreign Secretary’s view that what the Prime Minister has returned with is better than what we had before, but will he say something about the legal of status of the agreement, particularly the assertion by the Lord Chancellor, no less, that it is not legally binding? I respect the fact that the Lord Chancellor takes a different view from the Prime Minister, but how can his position as a senior legal Minister for the Government possibly be tenable when he is arguing that the deal is not legally binding and the Downing Street position is the precise opposite? Surely his position is untenable and Cabinet collective responsibility has been stretched too far.

--- Later in debate ---

[Mr Hammond]

As the hon. Gentleman will know, the principle of collective responsibility has been suspended in respect of this debate to allow Ministers to express a different opinion from that of the Government. Our position is clear: this is a legally binding agreement. It was registered yesterday at the United Nations as a treaty. The overwhelming majority of qualified legal opinion recognises that it is a legally binding international law decision.

[Several hon. Members rose—]

[Mr Hammond]

I will give way to my hon. Friend the Member for Wycombe (Mr Baker) and then I must make a little progress.

[Mr Steve Baker (Wycombe) (Con)]

Will my right hon. Friend explain what effect registering the document at the UN has, and on what basis he says that any of this is legally binding?

[Mr Hammond]

I am not a lawyer, so it is not a question of the basis on which I say it is legally binding, but there has been a plethora of qualified legal opinion supporting the view that it is a legally binding decision. Registering it at the United Nations records it as a treaty-status international law obligation. The document will be taken into account by the European Court of Justice, whose own decisions in the Rottmann case have established that it must have regard to interpretative decisions by Heads of State and Governments. The document itself makes it clear that it is legally binding.

[Sir William Cash (Stone) (Con)]

Will my right hon. Friend give way?

[Mr Hammond]

I am going to make a little progress.

Let me recall what we set out to achieve and what has been delivered. First, we set out to protect British jobs and ensure a level playing field in Europe for British business, because the creation of the eurozone and the greater level of co-ordination needed between eurozone countries created a very real risk either that non-Eurozone countries such as Britain would be dragged into integration that we do not need and do not want, or that our businesses would suffer discrimination because of our decision to retain our own currency. So alongside the crucial exemption from steps of further integration, we needed to negotiate clear safeguards for the pound, the exemption of British taxpayers from eurozone bailouts, protection against discrimination for Britain’s world-leading financial services industry, a clear role for the Bank of England, and a clear commitment that we will have a full say in the functioning of the single market while not being part of the single currency. This deal delivers all those demands in a legally binding agreement, underpinned by the commitment by all EU member states to enshrine those UK safeguards in treaty change.

[Sir William Cash]

rose—

[Mr Hammond]

I thought my hon. Friend might take his cue from my using the words “legally binding” again.

[Sir William Cash]

But what the Foreign Secretary is not doing is using other words that are part of this package—not only “legally binding” but “irreversible”. As he knows, the question of whether this is irreversible is highly contentious. It is clear from the evidence that has been received, and indeed from the European Scrutiny Committee’s report, that it is not irreversible.

[Mr Hammond]

I have to disagree with my hon. Friend. The decision is irreversible unless Britain chooses to allow it to be reversed, because it could be reversed only by all 28 member states agreeing. I can assure him that, certainly for as long as this Government are in office, Britain will never agree to that happening.

[Emma Reynolds (Wolverhampton North East) (Lab)]

Does the Foreign Secretary agree that this morning’s BBC interview with the former Danish Prime Minister Anders Fogh Rasmussen was very useful? He explained that Denmark’s opt-outs with the European Union are based on exactly the same type of legal basis and have not been reversed in the years that they have been in place.

[Mr Hammond]

The hon. Lady is exactly right. The Danish agreement has been in place for 23 years and continues to serve Denmark extremely well.

[Mr Jacob Rees-Mogg (North East Somerset) (Con)]

Will my right hon. Friend give way?

[Mr Hammond]

I am going to make a little progress now.

The second area we set out to address was Europe’s impact on competitiveness. We have achieved a commitment to completing the European single markets in services—a key area for Britain given the importance and competitiveness of our services sector—in digital; in energy, to ensure greater competition and lower energy bills for British households; and in capital, ensuring greater access to sources of finance for our entrepreneurs. We have also delivered a clear commitment to prioritising international trade agreements with the largest and fastest-growing economies across the globe, with the potential to boost our economy by billions of pounds a year; and agreement to cut the burden of EU regulation on business, with specific targets to be set for key sectors. That builds on a programme of work that the Commission is already undertaking, which has already slashed by 80% the pipeline of regulatory proposals, and bakes the deregulatory approach into the DNA of the European Union.

The third area in which this deal delivers is in ending the abuse of the principle of free movement to work in order to access the benefits of our welfare system, which are paid for by hard-working British taxpayers. We have already ended access to unemployment benefits and social housing for new arrivals and limited their time in which to find a job to six months. The package agreed last Friday gives us new powers to exclude criminals from EU countries, and stops EU nationals dodging British immigration rules to bring family members from outside the EU to live in Britain.

Under this agreement, we can apply our rules, including on minimum income and English language competence. It ends the unfairness of child benefits at British rates being sent to children living in countries with much lower living costs, and it gives us a new seven-year emergency brake to ensure that EU migrants will not have full access to in-work benefits until they have been in the UK for four years, answering the perfectly reasonable question: why should people take out when they have not paid in? Under this new arrangement, they cannot do that—no more something for nothing. Taken together, this is a package that will address the concerns of the British people about abuse of our benefit systems and erosion of our immigration controls.

[Mr Rees-Mogg]

On child benefit, will the Foreign Secretary confirm that the agreement does not meet the promise set out in the Conservative party manifesto, which said:

“If an EU migrant’s child is living abroad, then they should receive no child benefit or child tax credit, no matter how long they have worked in the UK and no matter how much tax they have paid”?

That has not been achieved. It is a failure.

[Mr Hammond]

As I have said before in this House, any reasonable person will look at the package that has been delivered. We have been clear from the outset that tackling abuse of our welfare system is about reducing the pull factor that makes the UK a target for inward migrants because they can get their wages topped up with a variety of benefits. The proof of the pudding will be in the eating. Although my hon. Friend can pick on a specific part of the package, I think that most reasonable people will want to look at it in the round.

[Mr Nigel Dodds (Belfast North) (DUP)]

rose—

[Mr Baker]

rose—

[Mr Hammond]

Let me make a little progress. The fourth area in which this deal delivers concrete change is in protecting us from political integration under the mantra of “ever closer union”. The British people have never believed in political union and have never wanted it, and now there is a clear and binding legal commitment to a treaty change to ensure that the United Kingdom will never be part of it. That is a crucial change that alters fundamentally the UK’s relationship with the EU, setting out clearly, in black and white, that the UK’s destination will be different from that of the rest of the EU.

[Mr Nigel Evans (Ribble Valley) (Con)]

The promise on child benefit was in our manifesto, so what will people think of the 2020 Conservative manifesto if we promise things we cannot deliver?

[Mr Hammond]

The Prime Minister gave a commitment to go to Brussels, to negotiate hard and to bring back the very best deal that he could achieve. That is what he has done. I think that people will look in the round at the commitments that were made and what has been delivered. In the end, it will be the British people who give their verdict on that package.

[Patrick Grady]

The Foreign Secretary has talked many times about the opinions of the British people, but does he not accept that there is a divergence of opinion across the United Kingdom, with a clear majority in Scotland in favour of remaining in the EU and considerably more sympathetic to the European project? I grew up in the Scottish highlands, where there are bridges and roads that simply would not exist without the gold-starred blue flag pinned alongside them. There is a lot more sympathy and appreciation among the people of Scotland for the positive things that the European Union has achieved.

[Mr Hammond]

This is a UK-wide question and a UK-wide referendum. I sincerely hope that when the dust has settled and the counting is done, the hon. Gentleman will discover that a significant majority of people across the United Kingdom believe that Britain is better off, stronger and safer inside the EU. When the debate plays out, however, I hope he has a stronger argument than, “They bunged us a few quid to build a road”, because, frankly, that is not a sustainable argument across the European Union as a whole.

[Several hon. Members rose—]

[Mr Hammond]

I am going to make a little progress. I am happy to take interventions, but in doing so I am conscious that I am eating into the time available for debate.

We have also set out to strengthen the powers of this Parliament and of the British people. In the last Parliament, we legislated, through the European Union Act 2011, to ensure that no more powers could be handed to Brussels without the explicit consent of the British people in a national referendum. That Act introduced a vital check on the one-way ratchet of the transfer of powers from Westminster to Brussels.

This deal goes further, breaking the ratchet once and for all, with a new mechanism to return powers from Brussels to national Parliaments. For new legislation, the UK Parliament, working with the other national Parliaments, will be able permanently to block proposed EU legislation that a majority of them do not want, through a red card system.

The declaration, signed by all 28 member states, that we secured at the European Council last Friday is, as I have said, legally binding in international law and has already been registered as a treaty at the United Nations. Authoritative legal opinion is clear on this point. It cannot be undone without the consent of every single member state, including Britain. The agreement commits all member states to changes, in due course, to the EU treaties to enshrine the protections for Britain as a non-member of the eurozone, and to confirm explicitly that ever closer union does not apply to the UK.

[Mr Rees-Mogg]

I am grateful to my right hon. Friend for giving way a second time. He phrases himself incredibly carefully. He says, quite correctly, that the agreement is binding in international law, which is not justiciable, but it is not binding in European law, where it has only to be taken into account by the European Court of Justice. Nor is it irreversible, otherwise section A(7) could not say:

“The substance of this Section will be incorporated into the Treaties at the time of their next revision in accordance with the relevant provisions of the Treaties and the respective constitutional requirements of the Member States.”

If it requires the respective constitutional procedures of the member states, that means that if they are not followed, it will not be implemented.

[Mr Hammond]

In the Rottmann decision, the ECJ itself made clear that it had to take account of a decision of this nature. I say to my hon. Friend and others who repeatedly make points about the legally binding nature of agreements that we are having a substantive debate about the future of Britain, in or out of the European Union. We have a package that has been agreed by all 28 countries and endorsed by their Heads of State and Government. It is not only legally binding, it is a solemn political commitment. I advise colleagues to address themselves to the substantive issues that we are debating, namely Britain’s place in the European Union and what the world would look like from the perspective of a Britain outside the EU.

[Sir Gerald Howarth]

I want to take the Foreign Secretary back to the serious substantive point that he made at the outset of his speech. He and the Prime Minister claim that somehow this deal enhances the security of Europe. By asserting that the EU has a role in the defence matters of Europe, they are going down an extremely dangerous line, playing into the hands of those such as Mr Juncker, supported by Chancellor Merkel, who want an EU army. There is a real risk that NATO will be undermined. The Foreign Secretary and the Prime Minister should address that issue, rather than have a junior spin doctor in No. 10 twisting the arms of former senior military officers to sign a letter to The Daily Telegraph, from which two signatories have already resiled.

[Mr Hammond]

My hon. Friend, who served with me in the Ministry of Defence, will know that no one is as alert as I am to the risks of undermining NATO’s crucial role in underpinning the defence of western Europe. We have always been very clear that any role played by the European Union in our defence must be complementary to, and in no way undermine, the role of NATO. I remind him that, when we took part in the counter-piracy operation to interdict terrorists pirating ships crewed by British citizens off the coast of Somalia, it was led by a British admiral based in Northwood, but it was a European Union mission that carried out the task. We have to look for roles in which the European Union can augment our security and safety. We are seeing that across the piece in organised crime and counter-terrorism. We see it today, and we have seen it in past years.

[Richard Drax (South Dorset) (Con)]

rose—

[Mark Pritchard (The Wrekin) (Con)]

rose—

[Mr Hammond]

I will make a little progress, if my hon. Friends will allow me.

These changes, taken together with our existing opt-outs from the euro, from Schengen and from justice and home affairs measures, give Britain a special status within the EU; indeed, it is a unique status. That gives us the best of both worlds: a seat at the table to protect our interests, but a permanent opt-out from those areas of the EU that we reject—out of ever closer union and political integration, out of Schengen, out of the euro and out of eurozone bailouts.

This is a significant package, delivering the substantial, legally binding and irreversible changes that we promised. But let me be clear: no one is suggesting that it solves all the problems of the EU. The deal is not the end of the reform of the EU, but it is an important step on the road.

No matter which side of the debate we are on, I hope that we will at least be able to agree across the House that the decision will be one of profound significance for the future of our country. It will be a choice that determines our trajectory for a generation or more. Let me be clear; the Government will respect the outcome of the referendum, whatever the result. There will be no second referendum. The propositions on the ballot paper are clear, and I want to be equally clear today. Leave means leave, and a vote to leave will trigger a notice under article 50. To do otherwise in the event of a vote to leave would represent a complete disregard of the will of the people. No individual, no matter how charismatic or prominent, has the right or the power to redefine unilaterally the meaning of the question on the ballot paper.

[Andrew Gwynne (Denton and Reddish) (Lab)]

The Foreign Secretary is absolutely right to make it clear that this is a one-time referendum and that the decision is in or out. If it is out, I think that the British people need to know what they would be going out to. Does he agree that it is about time the vote leave-ers set out precisely their vision of Britain outside the European Union?

[Mr Hammond]

I agree with the hon. Gentleman, and I am about to come to that point. I hope that my remarks might provoke some of my hon. Friends to put some flesh on the bones of what leaving might mean. I will say something about the consequences of, respectively, a vote to leave the EU and a vote to remain.

[Nick Herbert (Arundel and South Downs) (Con)]

Will the Foreign Secretary give way?

[Mr Hammond]

Let me make my point, and then I will happily give way to my right hon. Friend. A vote to leave is a vote for an uncertain future. That is a simple fact. That uncertainty would generate an immediate and negative reaction in financial markets; on that, all market commentators agree. Indeed, the mere possibility of a leave vote will have a chilling effect on business confidence even before the referendum.

[Mr McFadden]

It is already happening.

[Mr Hammond]

As the right hon. Gentleman suggests from a sedentary position, we have had a foretaste of that this week in the currency markets.

A vote to leave would trigger a fixed two-year time period under the treaty for the UK to negotiate the terms of our exit from, and our future relationship with, the EU. We would, of course, seek to reach agreement with the other 27 member states during that two-year period. In the meantime, however, we would be able to offer British businesses that wanted to invest no assurance at all about their future access to EU or other markets. We would have nothing to say to Japanese, American or Chinese companies that come here looking for a base from which to produce for the EU market. That would be truly a leap in the dark, and the effect would be to put the economy on hold until the negotiations were completed. At the end of those two years, there is no guarantee that agreement would have been reached, but our exit would be automatic unless every single one of the remaining member states agreed to an extension of the negotiating period.

[Nick Herbert]

My right hon. Friend is rightly drawing attention to the potential impact of Brexit on our economy, but may I take him back to the issue of security? It was suggested earlier that there would be no adverse consequences for security from our leaving the European Union, because we would remain members of NATO. Did he hear the remarks this morning of the former Secretary-General of NATO, Anders Fogh Rasmussen, who said:

“If the UK were to leave the European Union, the voice of the UK would be weakened”?

He concluded:

“I would strongly regret if Britain were to leave the European Union. A lot is at stake when it comes to security.”

Should we not listen to former Secretaries-General of NATO, as well as to former military commanders, and have some respect for their views?

[Mr Hammond]

Mr Fogh Rasmussen is not merely a former Secretary-General of NATO, but a former Prime Minister of Denmark. That country can tell us something about the binding and enduring nature of protocols that are made in EU negotiations. It is important to acknowledge that security comes in different parts: military security and defence, but also security against organised crime and against terrorism. The EU makes its most important contribution to our overall security in the latter two.

[Alex Salmond (Gordon) (SNP)]

The Foreign Secretary invokes article 50. Before notification was given under article 50, given that the referendum is an advisory one in terms of the constitution, would there be a vote in Parliament? Would there also be a vote in the Scottish Parliament, given the impact on devolved competencies under the Sewel convention?

[Mr Hammond]

The Government’s position is that the referendum is an advisory one, but the Government will regard themselves as being bound by the decision of the referendum and will proceed with serving an article 50 notice. My understanding is that that is a matter for the Government of the United Kingdom, but if there are any consequential considerations, they will be dealt with in accordance with the proper constitutional arrangements that have been laid down.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

I rather concur with the right hon. Member for Gordon (Alex Salmond), because I think that before the Government could move to any action as a consequence of the referendum, it would be essential for Parliament to debate the matter and for the Government to obtain consent from Parliament.

On the question of what happens if we leave, may I enlighten the Foreign Secretary? First, there is no obligation to go for article 50. Secondly, we would be taking back control over our borders, our laws and the £10 billion a year net that we give to the European Union. It would buy us plenty of options, which the Government seem determined to prevent us from even discussing.

[Mr Hammond]

My hon. Friend raises again the suggestion that there is no need to treat an exit vote as triggering a notice under article 50. He seems to suggest that there is some other way of doing it. He raised the question on Monday and I looked into it, because he caught my imagination, but I have to tell him that that is not the opinion of the experts inside Government and the legal experts to whom I have talked. We are bound by the treaty until such time as we have left the European Union. The treaty is a document of international law, and Ministers are obliged under the terms of the ministerial code to comply with international law at all times.

The UK’s current access to the single market would cease if we left the EU, and our trading agreements with 53 countries around the world would lapse. It is impossible to predict with any certainty what the market response would be, but it is inconceivable that the disruption would not have an immediate and negative effect on jobs, on business investment, on economic growth and on the pound. Those who advocate exit from the EU will need to address those consequences—the substantive consequences, of the kind that the British people will be most focused on—in the weeks and months of debate to come.

I want to say something about the environment in which the putative negotiations would be conducted, because it is crucial to understand how difficult the discussion would be.

Over the past 18 months, I have got to know pretty well my EU counterparts, and in many cases their senior officials, as well as the opposition figures in most of their countries and key figures in the Commission and the European Parliament. There is, perhaps surprisingly, an overwhelming consensus among them about the importance of Britain remaining a member of the EU. However, they, too, are politicians: they, too, have constituents to whom they are having to explain, even now, why Britain adds so much value to the EU that it has to be allowed a unique and privileged set of arrangements that are not available to any other member state. They have, collectively, already invested a lot of political capital in delivering on Britain’s agenda. I tell the House, frankly, that if we reject the best-of-both-worlds package that has been negotiated by the Prime Minister and if we reject the unique and privileged position in the European Union that is on offer to Britain, the mood of good will towards Britain will evaporate in an instant. That would be our negotiating backdrop. To those who say they would have to negotiate—

[Mr Nigel Evans]

Will the Foreign Secretary give way?

[Mr Hammond]

I will in a moment, but this is important. People are talking about a negotiation that we might have to have with 27 other member states, and it is important to think about the mindset of those 27 other member states as they go into such a negotiation. To those who say that they would have to negotiate a sweetheart trade deal with a UK outside the EU, I say this: there will be no desire at all among the political elites of the remaining 27 member states to help an exiting Britain show that it can prosper outside the EU. On the contrary, they will interpret a leave decision as two fingers from the UK, and we can expect precisely the same in return. The idea that they will go the extra mile to ensure that Britain can remain a destination for foreign direct investment to serve the EU market or that our financial services industry can compete in the European market on a level playing field is, frankly, fantasy land.

[Several hon. Members rose—]

[Mr Hammond]

I give way to my hon. Friend.

[Mark Pritchard]

I am grateful to the Foreign Secretary—

[Mark Pritchard]

I am showing respect, and I am sure my hon. Friend would want to show respect as well. I think if you insult people, you have a weak argument.

Does not the United Kingdom have a veto over foreign policy in Europe? If we were to leave the European Union, the United Kingdom would have less influence, by definition, on European Union foreign policy, and it would be more likely that European Union foreign policy was dominated, for good or bad, by France and Germany.

[Mr Hammond]

My hon. Friend is right. These are the complexities: obviously, if we were outside the European Union, we would not be bound by any foreign policy of the European Union, but, equally, we would not have any influence and, in this case, that influence is decisive because of our veto over that policy. It is a judgment, and people will have to weigh up the pros and cons.

[Richard Drax]

The Foreign Secretary used the expression “the political elites”. He slipped into using it just naturally. The political elites are the main problem, because they ignore the voter. If that goes on, it will just happen more and more.

[Mr Hammond]

Rather to my surprise, I agree with my hon. Friend. I shall use the phrase “the political elites” again in my speech, because he is absolutely right: there is a gap between what the political elites in some European countries are thinking and what their voters are thinking. However, on the subject we are discussing—a putative negotiation on Britain’s future relationship with the European Union—the reality is that our negotiators would have to engage with those political elites.

[Mr Nigel Evans]

Will the Foreign Secretary give way?

[Mr Hammond]

I will in a moment, but I want to make a little more progress.

In addition, any market access we agreed with our former EU partners would come at a very high price. We know that because we know what the basic models are for access to the single market for non-EU member states. We can look at Norway: pay up as if you were a member state, accept all the rules as if you were a member state, allow full free movement across your borders as if you were a member state, but have no say, no influence and no seat at the table; or Switzerland: spend eight years—

[Mr Jenkin]

It’s silly.

[Mr Hammond]

My hon. Friend says it is silly, but it is a fact that that is where Norway is today. It is a fact that it took Switzerland eight years to negotiate piecemeal access to the single market sector by sector, and it has had to accept three times as many EU migrants per capita as the UK. That surely cannot be the future for Britain that the leave campaign seeks: it is literally the worst of both worlds.

[Mr Nigel Evans]

I am interested to know my right hon. Friend’s judgment on the character of our fellow EU countries. Is he really saying that Germany would be so vindictive and spiteful that it would cut off its nose to spite its face? According to a House of Commons Library paper, we export £43.3 billion of goods and services to Germany and it exports £70.6 billion of goods and services to us, which is a deficit of £27.3 billion. Is he really saying that Germany is so vindictive and spiteful that it would close its door to that?

[Mr Hammond]

I want to make two points in response to my hon. Friend. He is of course absolutely right that Britain has a substantial deficit in trade in goods with the European Union. If all he is seeking is a free trade agreement for trade in goods—

[Mr Evans]

Goods and services.

[Mr Hammond]

I am talking about trade in goods. If that is all my hon. Friend is seeking, it would be relatively simple to negotiate, but Britain will need much more than that if we are to get a fair deal for Britain’s businesses and to protect British jobs.

I want to make another point to my hon. Friend. He is of course right that economic and business voices from across Europe would argue for a free trade deal of some description with the UK. However, the political elites would look over their shoulder at the effect of a British exit and at their political opponents in their own country, and they would be fearful that what they see as contagion might spread. They do not wish to do anything that would help us to demonstrate that Britain can succeed outside the European Union. That is a simple political fact. Everyone in the Chamber is a politician, and we all know how such a calculation works: when the chips are down, they will protect their political interests.

[Emma Reynolds]

Does the Foreign Secretary agree that those who advocate that we leave express a big inconsistency? On the one hand, they say, “When we are in the European Union, we can’t get anything we want”, but on the other hand, they say, “If we come out of the European Union, we will have precisely what we want”.

[Mr Hammond]

The hon. Lady has put her finger on it. That is what this debate will hinge on. Those who propose that we remain argue that we should stick with a proposition we know and understand, and lay on top of that the additional benefits that the Prime Minister has gained for us in the negotiation. Those who propose that we leave do not know—because they cannot know—what they are proposing to the British people. They can tell us what they would like to achieve and what they would hope to negotiate, but by definition they cannot know until afterwards and the British people cannot know until afterwards what proposition they would be voting for.

[Mr Jenkin]

Will my right hon. Friend give way?

[Mr Hammond]

No. I want to move on to setting out what I see as the consequences of Britain deciding to remain.

If Britain decides to remain a member of the EU, I want it to do so with the mindset of a leader. Having renegotiated the terms of our membership and secured the protections we need against further integration, we need to be a loud voice in the EU. We need to exercise our influence as Europe’s second largest economy and the recognised leader of its reform movement. We need to stop seeing ourselves as passive victims of the EU, and start to see Britain for what it is—one of the most powerful and influential member states, and one to whom others look for leadership in keeping the EU on track as a competitive, outward-looking, free-market union that is engaged with the challenges of a globalised economy.

We can take on that role because Europe is changing. There was a time when Britain, with its sceptical approach to the European project, really was in a minority of one, but the political balance across the EU is shifting away from an unquestioning acceptance of the inevitability of “more Europe” to an engaged scepticism—a desire for the EU to focus on where it can add value, leaving the member states to get on with their own business where it cannot; and a recognition of the benefits of membership, with an increasing focus on the costs and a healthy pragmatism about the limits to what the EU can deliver. In Denmark, Finland, Poland, Hungary and other Baltic and eastern European member states, we increasingly find like-minded partners who share our vision of Europe. Even in the Netherlands, one of the founder member states, the mood has shifted sharply. In that country, there is a slogan that rather neatly sums up what I think most people in Britain think about the EU: “National where possible, Europe where necessary.” Across the continent, the population, as opposed to the political elites, has become more sceptical about the EU and more focused on the need for reform and accountability.

[Jim Dowd (Lewisham West and Penge) (Lab)]

On the very point that the Foreign Secretary has just made, has he noticed that an increasing number of EU member states are looking enviously at the deal that Britain has managed to secure—I will leave the qualitative judgment to others—and seeing that this is a route that they want to take advantage of, because there is a huge appetite for reforming the European Union to ensure that it serves the people of Europe and not just the political elite?

[Mr Hammond]

The hon. Gentleman is right and that is my case: Britain can lead that reformist tendency within the European Union, which is subscribed to by more and more member states and by the populations in even more member states where the political elites have not yet woken up to the new reality.

Let us be clear with our neighbours that although the package agreed in Brussels last week is a big enough step forward to allow us to recommend to the British people staying in the EU on these special terms, they should not for a moment imagine that a UK recommitted to EU membership will rest on its laurels. They should expect to deal with a UK that fights continuously at the head of a growing phalanx of like-minded member states to keep the EU on the track of reform and competitiveness. They should expect us to police rigorously the delivery of the promises that have been made on deregulation, the repatriation of power, eurozone fairness, single market progress and trade agreements.

The choice for Britain is simple: a leading role in a reformed EU or a leap in the dark to negotiate from a position of weakness with the 27 member states we have just snubbed; driving the expansion of the single market and EU trade agreements from within or watching from outside as the rules of the market are shaped by the interests of others.

The special status that Britain has on offer means that we can have the best of both worlds. We can be in the parts of Europe that work for us and permanently out of those that do not. We can influence the decisions that affect us, shape the world’s largest market and co-operate to keep Britain safe, strong and better off, with the status of our pound and the Bank of England guaranteed and our exclusion from eurozone bail-outs confirmed. We will be out of the passport-free Schengen area and permanently protected from further steps of integration towards a European superstate, and new commitments will be made and mechanisms established to reduce burdens on business and return powers to member states. Of course there is more to do, but as we move towards the referendum, this Government have no doubt that on these terms, the United Kingdom is safer, stronger and better off inside a reformed European Union.

[Several hon. Members rose—]

--- Later in debate ---

[Alex Salmond]

If the hon. Gentleman will forgive me, I shall certainly give way to him slightly later.

I wanted to reflect on one point where I have particular experience and I think a bit of honesty is called for. I was the First Minister who lost a referendum and then resigned the next day. I did that because I do not think it is credible for a First Minister or Prime Minister to continue in office in these circumstances. I do not believe the Prime Minister—and I do not think probably the majority of his party and certainly of the country believes him—when he says he would sail on in office with a negative vote, to negotiate out of the EU, after telling people it was essential to the security and prosperity of the country, as he put it last week, for us to be in it.

There is evidence to suggest the Prime Minister has form on these matters. On 17 September 2014 he said in a statement that the question in the Scottish referendum was not about his future, but was about the future of Scotland and that he would continue regardless of the result, but by 28 September—11 days later—he confided to Scotland on Sunday the following:

“If the vote had been for Scotland to have left the UK, I genuinely would have been heartbroken. I would have felt winded and wounded. Emotionally, one would have thought, ‘I’m so saddened by this. I find it difficult to go on’.”

By “difficult to go on” I think he meant in office rather than anything more substantial.

That attitude has been confirmed by a number of sources since. I suspect that the idea that a Prime Minister could continue in office having lost such a vote is, to coin a phrase, “for the birds”, which is exactly why the hon. Member for Uxbridge and South Ruislip (Boris Johnson) is right in one bit of his apparent calculation: that an opening would allow a new Prime Minister, as he puts it, to negotiate our way back into some sort of European construct on better terms. The second half of that probably is “for the birds”, but at least in the first half about a vacancy being available the hon. Gentleman’s calculation may be right. I think the Prime Minister should own up, because I think his current position lacks some degree of credibility.

The nature of this debate is already having big impacts on politics. Earlier this week, while people in this place were understandably fixed on the contest between the hon. Member for Uxbridge and South Ruislip and the Prime Minister in the European debate, there was the settlement of the Scottish financial position. Huge tribute should be paid to the First Minister of Scotland and the Deputy First Minister, and indeed to those on all sides of the negotiating team, on bringing that settlement about. But I wondered about the rapid change in position that was taking place, where only a couple of weeks ago the Treasury position was to arrange a £7 billion reduction from Scotland’s finances, which became last week £3.5 billion, £2.5 billion earlier this week, and then ended up at zero by Tuesday afternoon. I am prepared to suggest that one reason why that change of heart may well have come about is that if it had not come about—[Interruption.] The Foreign Secretary says there was no change: believe me, the dogs in the street in Scotland know there was a substantial change over the last few weeks, and one reason why it may have come about, I suspect, is that if the Prime Minister was in the position of not being able to deliver his pre-referendum promises or vows to Scotland, he would perhaps find it difficult to sustain the argument that 27 other European leaders might be delivering their pre-referendum vows to him. We are already seeing aspects of this debate having a very substantial influence on politics.

I asked the Foreign Secretary earlier about the circumstances that would arise if the vote went for out and when article 50 would be invoked, and I have been reading the Library paper in preparation on exactly that issue. The Library paper suggests that the likely formulation would be that there would be a vote in this Chamber before the Government invoked the position, but the Government could say it was an Executive decision and just go ahead anyway. What it then goes on to argue is of great importance.

[Mr Philip Hammond]

I wish to clarify something. I answered the right hon. Gentleman on this point earlier, but I have taken advice since. It is the Government’s position that if the electorate give a clear decision in this referendum to leave, the Government will proceed to serve an article 50 notice; there will be no need for a further process in this House.

[Alex Salmond]

The Foreign Secretary says now, “No debate, no decision in the House”—right, fine. And I think that could be defended on the basis that it would be a brave person who took the position that the electorate had voted in a referendum and would attempt to gainsay it. But what I was going on to say to the Foreign Secretary is that perhaps he should pay some attention to what is in the Library paper, which goes on to put the position of what might be happening in the devolved legislatures. It says:

“As noted above, the competences of devolved legislatures and executives are circumscribed by EU law, and some positive responsibilities are placed upon the executives to implement that law. An argument could be made that the removal of these features on leaving the EU would prima facie alter devolved competence, and, insofar as it involved UK legislation, would require legislative consent from the devolved legislatures under the Sewel Convention.”